RBOB has given up its post-API gains and RBOB is sliding into the DOE data but both jumped as Gasoline inventories drew down and crude's build was bigger than the whisper number. Production jumped to a new record high.
Notably, Bloomberg Intelligence Energy Analyst Fernando Valle points out that the prospect of a trade war raised by U.S. President Donald Trump is narrowing distillate crack spreads even as demand remains robust. The fear is that a dispute would dampen industrial activity, reducing demand for diesel fuel that powers trucks and machinery.
API
Crude +5.66mm (+3mm exp)
Cushing -790k exp
Gasoline -4.536mm - biggest draw since Oct 2017
Distillates +1.487mm
DOE
Crude +2.408m (+3mm exp, whisper +2mm)
Cushing -605k (-600k exp)
Gasoline -788k (+1mm exp)
Distillates -559k
Inventories are just 2% above the five-year norm, with Cushing stockpiles more than 45% below the average.
All eyes are again on US crude production after EIA upped its forecasts and OPEC begged for Shale to stop... but production jumped 86k last week to a new record high...
Despite a kneejerk higher after API's big gasoline draw, RBOB has pushed lower along with WTI ahead of the DOE data, but both rebounded after (though RBOB is fading the initial jump)
“Oil fundamentals have been showing signs of weakening,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “Strong non-OPEC oil-production growth looks set to challenge OPEC and Russia’s ability to maintain price stability.”

As we previewed earlier this week, only one number matters for the markets - both stocks and bonds - this week, and it will be released at 8:30am this morning, when the BLS unveils the January CPI print, dubbed by various trading desks as "the most important CPI print ever", with every trader, both carbon and semiconductor based, focusing only on whether core CPI comes at 0.2% as expected, or higher. If it's the latter, TSY yields will spike - conventional wisdom goes - while the second leg of the equity rout could be unleashed. Inversely, if the core CPI disappoints, we may see a sharp move lower in 10Y yields and the dollar, while stocks prepare to retest all time highs.
“Since the last payrolls about two weeks ago, inflation is the obsession of traders,” Pierre Martin, a trader at Saxo Bank in Zurich, told Bloomberg. “Given the selloff in stocks and with a lot of brokers pushing clients to buy the dip, people are trying to position themselves ahead of the CPI figures today. The sentiment is that a lot has been priced in already, but I’m a bit more cautious and wouldn’t be surprised to see volatility aftershocks in the coming days,” Martin said.
There have been no volatility shocks for now, however, as one look at the futures and global stocks ahead of today's CPI shows not only the inverse of yesterday's early sea of red (which quickly turned green) but broad consensus - for now at least - that either the CPI number will disappoint or the market will promptly decide it does not matter if it indicates the economy is overheating.
Following another day of strong gains around the globe, S&P index futures extended gains, hitting a session high as European opened when the E-mini ran upside stops through Monday highs, although gains have since been somewhat pared back. March contracts on the S&P 500 rose 0.4 percent just after 6am ET, fluctuating during Asian trading hours. Futures on the Dow Jones Industrial Average added 0.6 percent, while the Nasdaq 100 Index was up 0.6 percent.
Also keep in mind that even if the CPI proves to be a dud, today is the monthly VIX options expiration. Counting puts and calls, there are 15.4 million VIX options outstanding, and 40% of them mature today. The move has the potential to spark substantial market volatility.
Ahead of the CPI, traders were again keenly focused on the second day of drama in the USDJPY which as noted overnight, took out a huge barrier as the Japanese currency hit a fresh 15-month high only to see dollar buyers emerge on break below 107.00 amid concerns faster U.S. inflation will drive down stocks. Both the Nikkei (-0.4%) and Topix (-0.8%) closed red as a result. However, after the European open, the Yen lost some ground as the dollar rebounded after its 4th consecutive day of losses, and at last check the USDJPY was trading around 107.40.
As Bloomberg notes, USD/JPY recovered back to 107.50 after breaking below 107.00 in Asian session, leading to broader recovery for USD across G-10, DXY comes back to flat.
In other currencies, the ZAR rallied after ANC confirmed a no-confidence vote in Zuma for tomorrow, while the SEK eventually weakened as Riksbank stresses lack of confidence in inflation levels.
Equity trading during the Asian session was mixed as the region failed to sustain upward US. Australia's ASX 200 (-0.3%) was subdued amid underperformance in its largest weighted financial sector as banks mulled over the Australian Prudential Regulatory Authority’s discussion paper on the application of a future leverage ratio, while Nikkei 225 (-0.4%) underperformed after disappointing Q4 GDP data and as exporters suffered the ill-effects of the soaring Yen.
Elsewhere, Shanghai Comp. (+0.5%) and Hang Seng (+2.3%) were resilient with Hong Kong propped up by strength among financials. Hong Kong’s Hang Seng Index rose 2.6% - it biggest daily gain since May 2016 - and the Hang Seng China Enterprises Index climbed 2.8%, with banks leading the gains as U.S. futures jumped. Hang Seng Bank was the best performer on Hang Seng, rising 7.3% and heading for biggest daily gain since May 2009; co.’s rating and price target raised at Goldman. The mainland Shanghai Composite and CSI 300 indexes were cautiously higher as Chinese markets wind down for lunar new year break.
European stocks also advanced as investors assess earnings figures from companies including Natixis and Credit Suisse. The Stoxx Europe 600 Index rosw 0.6% in a broad rally. Banks were the best-performing industry group as Natixis and Credit Suisse lead gains. Sky climbed 3.2%, among the best gainers on the Stoxx 600, after the company secured its position as leading broadcaster of Premier League soccer for the next three-year cycle, reducing the cost per match by 16%.
Meanwhile, after 10Y yields sunk to session lows around midnight, just above 2.80%, treasuries rebounded with futures and the dollar, rising to 2.84%; there was bull-flattening observed in both JGB and Aussie curves amid wider risk-off. Once again, if the CPI surprises to the upside, watch as the 10Y yield jumps above 2.90% on its way to 3.00% and beyond.
Elsewhere, WTI and Brent crude futures traded lower in the wake of yesterday’s build in API inventories ahead of
today’s DoE release with focus on US production figures which climbed above the 10mln bpd level last week and surpassed that of Saudi Arabia. In terms of recent energy commentary, the Saudi Oil Minister Al Falih says Saudi Arabia will invest for maximum oil output capacity and thus shows no signing of caving to the ongoing surge in US production. In metals markets, spot gold is modestly firmer, tracking fluctuations in the USD, while Copper saw its largest jump since October during Asia-Pac trade as shorts were covered ahead of the Lunar New Year and Dalian Iron Ore printed 3-week highs.
In other news, the South African police have raided Gupta family's home. Ajay, Atul and Tony Gupta are accused of using their friendship with Mr Zuma to control state appointments and contracts, claims they and the president have denied, the FT reported. . There were also reports that Zuma was arrested but this was dismissed as fake news by the South African police minister Mbalula. Later it was reported that South African ANC have pushed for a motion of no confidence against Zuma for tomorrow.
Figures on inflation and retail sales are set to face closer scrutiny than usual after the recent market plunge. Scheduled earnings include Cisco Systems, Applied Materials and Marriott.
Market Snapshot
S&P 500 futures up 0.4% to 2,673.00
STOXX Europe 600 up 0.8% to 373.40
MSCI Asia Pacific up 0.3% to 172.95
MSCI Asia Pacific ex Japan up 1% to 569.23
Nikkei down 0.4% to 21,154.17
Topix down 0.8% to 1,702.72
Hang Seng Index up 2.3% to 30,515.60
Shanghai Composite up 0.5% to 3,199.16
Sensex down 0.05% to 34,281.61
Australia S&P/ASX 200 down 0.3% to 5,841.24
Kospi up 1.1% to 2,421.83
German 10Y yield fell 1.4 bps to 0.736%
Euro up 0.06% to $1.2360
Brent Futures down 0.7% to $62.30/bbl
Italian 10Y yield rose 4.8 bps to 1.815%
Spanish 10Y yield fell 2.6 bps to 1.498%
Brent Futures down 0.7% to $62.30/bbl
Gold spot up 0.08% to $1,330.59
U.S. Dollar Index down 0.06% to 89.65
Top Overnight News
Federal Reserve Chairman Jerome Powell suggested that the U.S. central bank would push ahead with gradual interest-rate increases even as it remains on the lookout for threats to the financial system in the wake of the recent stock market rout.
China tightened restrictions on equity-linked options trading, people familiar with the matter said, the latest sign that authorities are acting to contain market turbulence after the biggest stock slump in two years
The euro-area economy expanded 0.6% q/q in the fourth quarter, in line with estimates, while industrial output expanded 0.4% m/m in December, versus +0.1% estimate
Portugal, Malta, Slovakia and Latvia already have said they intend to support Spanish Economy Minister Luis de Guindos over Irish central bank governor Philip Lane to be the next vice president of the ECB. Officials from Austria, Cyprus and Finland told Bloomberg they are leaning toward supporting Guindos
Japan’s economy expanded for an eighth quarter, but the pace of growth fell sharply and missed expectations
Michael D. Cohen, President Trump’s longtime personal lawyer, said on Tuesday that he paid $130,000 out of his own pocket to a pornographic-film actress who had once claimed to have had an affair with Mr. Trump
Economists who were slow to predict the first Bank of England interest-rate hike in a decade last year now expect the next one to come in May, but the decision is seen as being on a knife-edge
Dutch Foreign Minister Halbe Zijlstra quit his post after admitting he lied about attending a 2006 meeting with Russian President Vladimir Putin, stepping down the same day he had been scheduled to travel to Moscow to meet his Russian counterpart
U.S. forces killed scores of Russian mercenaries in Syria last week in what may be the deadliest clash between citizens of the former foes since the Cold War, according to one U.S. official and three Russians familiar with the matter.
Asian sentiment was mixed as region failed to sustain the momentum from US, where stocks continued their rebound and posted a 3rd consecutive gain. ASX 200 (-0.3%) was subdued amid underperformance in its largest weighted financial sector as banks mulled over the Australian Prudential Regulatory Authority’s discussion paper on the application of a future leverage ratio, while Nikkei 225 (-0.4%) underperformed after disappointing Q4 GDP data and as exporters suffered the ill-effects of a firmer currency. Elsewhere, Shanghai Comp. (+0.5%) and Hang Seng (+2.3%) were resilient with Hong Kong propped up by strength amongst financials. Finally, 10yr JGBs were marginally higher amid a risk-averse tone in Japan and alongside overnight gains in USTs, while the 5yr JGB auction results were somewhat inconclusive and failed to impact prices. PBoC skipped open market operations.
Top Asian News
Japan’s Slower Growth, Surging Yen Tie the BOJ to Stimulus
Singapore Economy Grows at Slower Pace Than Previously Estimated
Hong Kong Stocks Set for Boost After Double Whammy Bruising
Late Rally Spurs Hong Kong Shares to Biggest Gain Since May 2016
Malaysia Set for Solid, But Moderating Growth in 2018
European equities (Eurostoxx 50 +0.7%) trade higher across the board as sentiment remains supported in the wake of a firmer Wall St. close and mixed Asia-Pac session with macro newsflow otherwise relatively light for the region. In terms of sector specifics, financials have been in focus following earnings from Credit Suisse (+3.2%) who sit at the top of the SMI with gains for the sector mildly offset by Credit Agricole (-2.1%) who failed to appease investors with their latest statement. Elsewhere, energy names lag their peers alongside price action for WTI and Brent in the wake of yesterday’s API build.
Top European News
Euro-Area Economy Keeps Cruising Speed as 2018 Outlook Improves
H&M Forecasts Physical Stores to Return to Growth Next Year
Melrose Say Would Keep GKN’s Powder Metallurgy Unit
German Economy Zips Along as Trade and Spending Drive Growth
Five Star’s Pay Pledge Backfires: Italy Campaign Trail
In currencies, the early focus on the Swedish Krona and a knee-jerk reaction to Riksbank Ohlsson’s objection against holding the repo rate steady at -0.5%. Eur/Sek briefly dropped below 9.8750 as the hawkish Board member dissented in favour of a 25 basis point hike before rebounding towards pre-policy verdict session highs (around 9.9200) on the unchanged guidance for tightening in H2 this year, slightly softer inflation outlook and caveat that more easing remains an option if favourable economic conditions change. Thereafter, SEK was placed under pressure during Jansson’s presser after stating that the Bank discussed whether to delat the first rate hike path.Meanwhile, the Jpy continued its sharp appreciation vs the Dollar and other major currency counterparts overnight, with Usd/Jpy taking out the 2017 low circa 107.30, and reported big barriers at 107.00 to record a fresh multi-year base around 106.85. However, spec short covering has subsequently pushed the pair back up over the 107.00 level to test offers around 107.50, and this has helped the DXY recover 89.500+ status. Eur/Usd looks flanked by bids and offers at 1.2350 and 1.2400 respectively, with hefty option expiries in the vicinity of those range extremes also likely to provide support and resistance (2.6 bn between 1.2335-50 and 2 bn from 1.2400-05). Other Usd/G10s are also relatively rangebound, but the Kiwi is outperforming after a rise in NZ inflation expectations, with Nzd/Usd back above 0.7300. In the EM region, Usd/Zar remains in the spotlight and back near recent lows around 11.8500 awaiting a response from President Zuma to the latest ANC party ‘requests’ to stand down, while raids on Gupta family residences have resulted in several arrests.
In commodities, WTI and Brent crude futures trade lower in the wake of yesterday’s build in API inventories ahead of today’s DoE release with focus on US production figures which climbed above the 10mln bpd level last week and surpassed that of Saudi Arabia. In terms of recent energy commentary, the Saudi Oil Minister Al Falih says Saudi Arabia will invest for maximum oil output capacity and thus shows no signing of caving to the ongoing surge in US production. In metals markets, spot gold is modestly firmer, tracking fluctuations in the USD, while Copper saw its largest jump since October during Asia-Pac trade as shorts were covered ahead of the Lunar New Year and Dalian Iron Ore printed 3-week highs. US API Weekly Crude Stocks (Feb 9) 3.947M vs. Exp. 2.800M (Prev. -1.05M). CME raised crude oil future margins to USD 2100 from 1950 per contract for next month. Saudi Oil Minister Al Falih stated that Saudi Arabia will invest for maximum oil output capacity. (Newswires) As a guide, maximum sustainable oil capacity is 12.5mln bpd. Saudi Oil exports will be kept below 7mln bpd in March despite maintenance shutdown of Samref Refinery, while Aramco oil production will be 100K bpd below February levels; according to Saudi Oil Minister
Looking at the day ahead, the key focus is clearly the January CPI report in the US, while January retail sales will also be released alongside it. December business inventories is the other data release due in the US while in Europe we’ll get Q4 GDP in Germany (second estimate) and the final January CPI revisions, along with Q4 GDP for the Euro area (second estimate). Away from data the Bundesbank’s Weidmann is due to speak in the morning, followed by the ECB’s Mersch. German Chancellor Merkel is also due to speak at a CDU event. CISCO, and Credit Agricole will report earnings
US Event Calendar
7am: MBA Mortgage Applications, prior 0.7%
8:30am: US CPI MoM, est. 0.3%, prior 0.1%; Ex Food and Energy MoM, est. 0.2%, prior 0.3%
US CPI YoY, est. 1.9%, prior 2.1%; Ex Food and Energy YoY, est. 1.7%, prior 1.8%
8:30am: Retail Sales Advance MoM, est. 0.2%, prior 0.4%; Ex Auto MoM, est. 0.5%, prior 0.4%
Retail Sales Ex Auto and Gas, est. 0.3%, prior 0.4%;
Retail Sales Control Group, est. 0.4%, prior 0.3%
8:30am: Real Avg Weekly Earnings YoY, prior 0.67%; Real Avg Hourly Earning YoY, prior 0.4%
10am: Business Inventories, est. 0.3%, prior 0.4%
* * *
DB's Jim Reid concludes the overnight wrap
Will today provide a Valentine’s Day heartbreak for markets or will we feel the warm fuzzy embrace of a soft US CPI print that reminds people of the halcyon days of 2017? This really is going to be the main focal point every month this year we think. We are torn here at DB as 2018 has long been targeted by us as the year of the inflation comeback, however there are reasons why today’s number may not see this materialise yet. If it doesn’t we’d still be confident that the year will be marked by higher inflation than expected though. The official house forecast is for a slightly softer core inflation print for January (0.16% m/m), which would lower the year-over-year rate by one-tenth to 1.7%, due to the negative base effect from a strong print in January 2017. Nevertheless the 6-month annualised growth rate for core CPI would rise further to 2.2% under DB’s forecast. What adds to the uncertainty about today’s print is that the BLS have just updated their seasonal adjustments which may iron out what has been a consistent beat in recent years for January’s print. The new seasonal factors imply that January CPI will be 4 bps lower than it would have been under the previous seasonal assumptions and could easily be the difference between it rounding up or down a tenth. Our economists note that this risk may not be fully reflected in consensus expectations, which may have been submitted prior to the release of these factors.
Staying with CPI, Craig and I put a short "Macro Bites" out this morning which follows on from our economists' work comparing the 1960s to the current decade. Their work looks at factors leading to a sudden breakout in inflation in the former period and how there are similarities to today. We show how various asset prices behaved pre and post the inflation surge in 1966 and compare it to today. As England football fans let’s hope the economic similarities aren't the only ones in 2018.
Markets are again quiet leading into today's number. It's almost as if last week didn't happen. However the fact that the VIX and VStoxx remain at 24.97 (-2.5%) and 25.95 (-7.9%) respectively reminds us of the shock. In equities, European markets were broadly lower, partly reversing Monday’s gains with the Stoxx (-0.63%), DAX (-0.70%) and FTSE (-0.13%) all down modestly. The S&P initially traded c0.7% lower, but recovered throughout the day to be +0.26% higher with modest gains from the real estate, financials and discretionary consumer sectors. The Dow (+0.16%) and Nasdaq (+0.45%) also advanced modestly.
Staying in the US, in the prepared remarks at his ceremonial swearing in, the new Fed Chair Powell reiterated that “we are in the process of gradually normalising both interest rate policy and our balance sheet with a view to extending the recovery…” Elsewhere, he noted that “we will remain alert to any developing risks to financial stability”, which to us sounds all very comforting, but imagine the potential carnage had he suggested that the Fed ‘won't’ be paying any attention to risks to financial stability. Finally, he indicated the “financial system is incomparably stronger and safer, with much higher capital and liquidity” and that “we will also preserve the essential gains in financial regulation while seeking to ensure that our policies are as efficient as possible”.
Following on, the WSJ noted unnamed sources suggesting the Fed’s Mester impressed the selection team and that the White House is considering her for the Vice Fed Chair role, although also conceded there was currently no front runner for the job. Earlier on, Ms Mester reiterated her views that tax cuts could add 0.25%-0.5% of extra economic growth over this year and next, but given what she has seen so far, there could be “salient upside risks to the forecasts”. On rates, she reiterated that “if economic conditions evolve as expected, we’ll need to make some further increases in rates this year and next, at a pace similar to last year” when the Fed raised rates three times.
This morning in Asia, markets are mixed. The Hang Seng (+1.25%), Kopsi (+0.93%) and China’s CSI 300 (+0.51%) are all up while Nikkei (-0.46%) is down modestly as we type. The latter partly impacted by the stronger YEN as it’s up c0.8% this morning back to mid-November 16 levels. Datawise, Japan’s 4Q GDP was below market and the lowest in two years at 0.5% annualised (vs 1% expected), with both private consumption and business spending lower than
forecasts.
Now recapping other markets performance from yesterday. In government bonds, slight risk aversion seemed to help core bonds with 10yr UST and Bunds yields down 2.9bp and 0.7bp respectively while Gilts rose 1.7bp following theb eat on CPI. Elsewhere, peripherals yields rose 4-6bp with losses led by Portugal. Turning to currencies, the US dollar index retreated for the second straight day (-0.56%), while the Euro and Sterling gained 0.49% and 0.40% respectively. In commodities, WTI oil dipped 0.17% while precious metals strengthened c0.4% (Gold +0.52%; Silver +0.21%). Other base metals broadly rebounded as the dollar weakened (Copper 1.37%; Zinc +1.96%; Aluminium -0.2%).
In Germany, the potential for a new grand coalition government seems to have increased. Overnight, the SPD has elected a new party leader Andrea Nahles. She noted “I’ll lobby in favour of entering into a grand coalition” with Ms Mekel’s bloc and that “….I’m going to put everything I have into getting a successful outcome”. Looking ahead, the earlier agreement between Ms Merkel and the SPD needs to be approved by the c460,000 SPD members, which is expected to wrap up in early March. Elsewhere, the UK PM May will meet with Ms Merkel this Friday at Berlin to discuss Brexit with a press briefing afterwards.
In the US, after President Trump call for a “reciprocal tax” on imports against higher tariff countries earlier in the week as part of his 2019 budget speech, an unnamed senior White House official told Bloomberg that no proposals for such tax was in the works and the President may be simply reiterating his long held sentiments. Notably, President Trump has the power to impose such trade penalties on his own.
Back in Europe, the ECB’s Draghi noted the blockchain technology is “quite promising” and the ECB is “very interested” in its potential usage. However, for now “it’s still not secure for central banking and we need to investigate it more”. Elsewhere, he reiterated that bitcoins are not considered as a proper currency. Finally, our European economics team have provided an update on what recent market developments means for the ECB. They note that their euro area financial conditions index is at the lowest level since mid-2014, just before the start of ECB unconventional monetary policy. However, they argue that strong economic momentum and the maturing economic cycle may add resilience in the face of tighter financial conditions, and they find that core inflation will continue to satisfy the policy exit criteria if the current level of financial conditions is maintained. Overall, they note that a gradual tightening in financial conditions is the ECB’s objective. Refer to their note for more details.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January NFIB small business optimism index was above market at 106.9 (vs. 105.3) and slightly below the 34 year high of 107.5 back in November. In the UK, the January CPI was also above market at -0.5% mom (vs. -0.6%) and core CPI at 2.7% yoy (vs 2.6% expected). Elsewhere, both the core PPI and RPI were slightly lower than expectations. The core PPI was 2.2% yoy (vs. 2.3%), while the RPI was -0.8% mom (vs. -0.7%) with annual growth of 4%. Finally, the December house price index rose 5.2% yoy (vs. 4.9% expected) driven by Scotland and Southwest England, while London was the weakest at +2.5%. In France, its 4Q wages index was slightly below market at 0.1% qoq (vs. 0.2%) but still up 1.3% yoy.
Looking at the day ahead, the key focus is clearly the January CPI report in the US, while January retail sales will also be released alongside it. December business inventories is the other data release due in the US while in Europe we’ll get Q4 GDP in Germany (second estimate) and the final January CPI revisions, along with Q4 GDP for the Euro area (second estimate). Away from data the Bundesbank’s Weidmann is due to speak in the morning, followed by the ECB’s Mersch. German Chancellor Merkel is also due to speak at a CDU event. CISCO, and Credit Agricole will report earnings

Cryptocurrency prices are tumbling once again overnight with Ripple getting smashed...
Bitcoin is back below $12,000 and Ethereum testing down towards $1000...
There are no clear catalysts but @IamJosephYoung notes that the South Korean government previously announced that under-aged investors and foreigners will be prohibited from trading cryptocurrency. Korbit is the first one to comply with that policy. Bithumb and Coinone yet to comment on it. Date expected to be February 1, not confirmed yet. Kookmin Bank and some other banks will not provide support for exchanges. But, Shinhan Bank will. Soon, they'll regret giving the entire market to their competitor.
And perhaps the pre-emptive impact of that speculative capital leaving the market is triggering these drops.
Additionally, headlines in the SCMP suggest further pressures from China...
The People’s Bank of China has ordered financial institutions to stop providing banking or funding to any activity related to cryptocurrencies, further tightening the noose since its shutdown of crypto exchanges last September sent digital currency enthusiasts fleeing overseas.
“Every bank and branch must carry out self-inspection and rectification, starting from today,” according to a document issued by the central bank on Wednesday. “Service for cryptocurrency trading is strictly prohibited. Effective measures should be adopted to prevent payment channels from being used for cryptocurrency settlement.”
The Chinese-language document, as seen by the South China Morning Post, was distributed as an internal document among banks, and not published on the central bank’s official website.
However, Government crackdowns, often meant to protect against excessive speculation, also end up dousing the fire of technological innovation, said Kay Van-Petersen, an analyst at Saxo Bank.
Decentralised systems like capital cannot be killed because “it will flow to where it is appreciated globally,” he said. “So you can choose to be part of that technological innovation or on the other side of the table.”
“Most of the trading is taking place via US dollar now, as some big accounts active in digital currency trading are already on China’s official watch list and payment channel already blocked,” said Zhao Dong, an individual bitcoin investor who spends most of his time in Japan now.
“This move by the PBOC is further pushing capital and innovation out of China.”
However, as Bonner & Partner's Bill Bonner notes, there's one simple reason why this latest crypto crash is temporary...
3.5 million…
That’s the estimate for how many “ghost accounts” were created by banking giant Wells Fargo.
That’s about 1% of the total U.S. population. It’s also roughly the population of the state of Connecticut.
You’ve likely heard the story already, so I won’t go into all the details. But here’s the gist…
Wells Fargo created millions of fake accounts for its customers… to charge them fees for services that they never requested.
It was later discovered that Wells Fargo was signing customers up for unwanted insurance policies as well – again, to charge customers for services that they never requested. This was outright fraud.
It’s for reasons like this that a new type of technology has burst onto the scene. It enables secure, reliable, and transparent transactions… without the potential for manipulation by big financial institutions.
As an investor, this technology needs to be on your radar.
Here’s why…
You Can’t Trust the “Trusted” Intermediaries
Recently, I wrote to you to give you an “inside look” at the world of cryptocurrencies. I told you that the crypto market would experience some pullbacks and high volatility. We’re seeing that today. Bitcoin, the world’s first cryptocurrency, dropped about 30% this week.
But despite these pullbacks, I’ve also told you that these new crypto assets still have a long way to run in the years ahead. And the reason why can be summed up in one word: blockchain.
You’ve likely heard the term “blockchain” associated with the popular cryptocurrency bitcoin. You may even know it as the decentralized ledger technology underpinning cryptocurrencies.
But that’s only part of the story…
Blockchain technology is also known as distributed ledger technology. We can think of a distributed ledger in its simplest form as a distributed database – distributed in the sense that there are complete copies of this database (or ledger) scattered around the world.
Historically, companies, governments, and individuals all keep their records in one centralized database. Imagine a room with racks of computers that store information.
But centralized databases can be manipulated… Records can be changed, hard drives can fail, data can be lost, and the records represent only one party’s view of any given transaction.
In the world of blockchains and distributed ledger technology, the exact opposite is true. The transactions recorded on the ledger represent a transaction that takes place between the parties involved and is confirmed by the blockchain network via a consensus.
Once a transaction is written to the ledger, it is immutable. It cannot be changed.
The image below gives you an idea of the difference between these two network types.
The value and utility that a well-designed blockchain provides is remarkable. Immutability, secure transactions, privacy, transparency, the reduction or elimination of fraud…
That last part is key.
That’s because in a centralized system, we depend on “trusted” intermediaries (banks and other financial institutions) to conduct transactions.
But as we’ve learned time and time again, these “trusted” intermediaries are not at all trustworthy.
It wasn’t long ago when the LIBOR scandal uncovered that many of the most “trusted” financial institutions in the world were manipulating interest rates for their own benefit, and of course at the expense of others.
Banks like Barclays, Deutsche Bank, JPMorgan Chase, UBS, Citigroup, Bank of America, and the Royal Bank of Scotland were found to be right in the middle of these manipulations. And we’ve already discussed Wells Fargo…
The corruption is seemingly endless.
The New Internet
By design, blockchain technology removes the potential for manipulation to take place.
You can think of this as a “new” internet. Today’s internet is how we send pictures, stream videos and music, and send emails.
But blockchain networks are different. They are all about transferring value.
The internet of value will allow you to send money, fulfill smart contracts, confirm your identity without sending sensitive information, and so much more.
The way that value is transferred is typically through a blockchain’s own cryptocurrency. Each blockchain usually has a controlled, finite supply of it by design.
For example, in the case of the bitcoin blockchain, bitcoin is its cryptocurrency… its means of transferring value and incentivizing network participants.
And the bitcoin supply is finite – only 21 million will ever be produced.
Think about that… a blockchain has its own monetary policy written into its software.
It’s Not Too Late
That’s why I’m so excited about this technology.
It has the potential to rewrite our entire society the way the internet did more than 20 years ago. And the assets associated with this technology – cryptocurrency and digital tokens – will continue to soar in value.
You may think that the cryptocurrency boom has already peaked. You may think you’re too late. But consider this…
I recently came back from a blockchain conference in New York. One of the most remarkable comments made was that the “big money” (hedge funds and large money managers) isn’t really in the cryptocurrency market yet.
The total cryptocurrency market sits at around $500 billion. But the institutional funds need the market to hit $1 trillion before they can start investing heavily. And when that happens… most likely sometime this year… the crypto market will really take off.
And the institutional money will first put their dollars to work in the cryptocurrencies that have the largest market capitalizations. That means investors should be looking closely at bitcoin, Ethereum, Ethereum Classic, and Bitcoin Cash, to start.
There will certainly be some pullbacks and high volatility along the way, like we’re seeing today. But I’m here to tell you… now’s the time to get in.